SM Investments Says Tourism Push to Lift Returns: Southeast Asia

By Ian Sayson -
May 13, 2013

SM Investments Corp. (SM), Philippine
billionaire Henry Sy’s holding company, forecasts return on
equity will rise to 15 percent in three to five years as its
tourism investments, including a Manila casino, gain traction.

SM Investments, the most valuable Philippine company, has
trailed holding companies of other tycoons in return on equity
as its tourism projects are only in a starting phase, Vice
Chairman Teresita Sy-Coson said in an interview in Manila, where
the company is based.

“Some of these businesses are still in the growing stage
like the hotels, convention centers, sports arena and resort,”
Sy-Coson, daughter of Philippines’ richest man, said in an
interview on May 8. “We are happy with 15 percent as long as we
hit it every year.”

SM Investments will benefit from an increase in travelers
as arrivals in the first quarter rose 10.8 percent to a record
1.27 million, according to the Department of Tourism. The
Philippines is counting on casino growth in Manila to draw more
tourists and is targeting 5.5 million international visitors
this year from 4.3 million in 2012, Tourism Secretary Ramon
Jimenez said in February.

“There is room for ROE to grow further,” said Richard Laneda, analyst at Manila-based COL Financial Group Inc. “These
tourism-related projects are built on property that otherwise
will just be entries in the books that don’t earn income. As
these assets are used, this will help in ROE expansion.”

Delayed Returns

SM Investments’ return on equity will rise from 14.3
percent last year, its highest based on data going back to 2003
when it was 8.2 percent. Still, it trails Philippine Long
Distance’s 23.9 percent and 18.3 percent at LT Group Inc. of
billionaire Lucio Tan and 14.7 percent at George Ty’s GT Capital
Holdings Inc.

SM Investments overtook Philippine Long Distance Telephone
Co. as the nation’s biggest company by market value last year as
faster pace of economic expansion fueled growth at its bank and
retail businesses. The company’s profit reached a record 24.7
billion pesos ($600 million) last year. It may increase at least
15 percent this year, Chief Financial Officer Jose Sio said on
April 25.

It takes the company longer to realize returns from tourism
projects compared with its other businesses, Sy-Coson said.

Tourism Future

The push for tourism has been part of Henry Sy’s plan when
he was parlaying a shoe store into shopping malls, department
stores and grocers, his 62-year-old daughter said. Sy opened the
Mall of Asia in 2006, the largest Philippine shopping mall then,
betting the complex will draw local and foreign tourists.

“My father always said tourism is the business of the
future,” Sy-Coson said. “The problem is tourism projects have
a long gestation period. The asset revaluation opportunity is OK
but in terms of returns it’s not that good.”

Tourism projects need at least 15 years of operations to
break even while shopping malls have a 10-year average payback
period, she said.

“That is what we are struggling with, the long gestation
period for tourism projects, like the hotel and the resort,”
Sy-Coson said. “There is no overcapacity right now and tourism
will only get better than what it is now.”

SM Investments owns convention centers, hotel resorts and a
16,000-seat sports arena. It owns the nation’s biggest shopping
mall operator, department store and supermarket chains as well
as the country’s biggest bank by assets. It plans to add five
hotels in five years.

Its listed property venture, Belle Corp. has partnered with
Melco Crown Entertainment Ltd. to build a Manila casino which
will open in 2014.